Green Beta: Comparison of Green and Non-Green Stocks Based on Downside Risk

Abstract

The study offers an innovative technique for diversifying the downside risk by selecting green stocks for investments. Investors fancy green stocks due to their ability of generating sustainable returns. Pursuing such arguments, this study provides a comparative analysis of green and non-green stocks to measure whether green stocks help investors secure their investments during the downward movement of the market, by applying multivariate regression after collecting the data for stocks listed at AIM over the period of 2012 to 2020. The findings of the study prove that green stocks reduce the downside risk as compared to non-green stocks and compensate investors by providing them sustainable returns for holding the stocks with negative returns. However, non-green stocks also have a strong association with downside risk but have less effect on downside risk than green stocks. The study has strong implications for investors who are searching for new exotic asset classes to reduce the risk and improve the returns, particularly during downward recessions of the market.